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CONTAINER lines on the transpacific trade have been accused of using “opportunistic” practices to benefit from the frontloading of cargoes ahead of increased tariffs but could be about to face the consequences.
“Carriers have had a very opportunistic year,” said David Bennett, president of US forwarder Globe Express Services. “The contracts we signed back in April and May were basically thrown out the door because suddenly there was a demand that surged due to the threat of tariffs. Carriers said they could no longer carry the freight at the rate they had agreed on six weeks earlier.”
There was no doubt that the trade war talks and the concerns over the tariff increase has had an effect on the industry, Mr Bennett told the Cargo Logistics Canada Expo + Conference in Vancouver.
“We’ve seen surges of freight early on, but absolutely no surge in freight leading up to Chinese New Year. What could be moved up through the production cycle had already been moved up.”
The past three weeks had been very soft and the next six weeks would be even softer, he said.
“All the freight that that would typically move at this time of the year has already been advanced because people were terrified that the tariffs would have been increased by 25%.”
While no one knew what would happen on March 1, Mr Bennett said he doubted shippers would try to advance freight again because anything that could be moved had been moved.
“The carriers have something of a fake demand curve. They have taken advantage of the situation and it is going to be a very interesting 2019-2020 for them, because I do not think demand is as strong as we have seen as a result of these tariff talks.”
While carriers would seek to recover increased fuel costs as they transitioned to low-sulphur bunkers, it would be harder to recover the good will lost by saying the demand curve had changed and taking advantage of the circumstances in the market, Mr Bennett said.
“Carriers need, as an industry, to look at their model,” he said. “If you can move freight at $1,500 a box with a guarantee of x boxes per week, you can count that into your business plans; it should be fair and consistent throughout the year. If you need a bigger number to pay for it, you should have that conversation at the end of that contract.”
There would be some challenges to carriers going into the next negotiations, he added.
“There is no longer going to be stability throughout the year from a pricing perspective,” Mr Bennett said. “We’re being told that it is going to be a mix of fixed and variable rates. That’s not just from the 3PL side; I think the beneficial cargo owners are also faced with the same challenge.”
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February 13, 2019